Importance of Management Accounting in this Era

Management Accounting in this Era

1. Management Accounting
Dr. Priyanka Jayaraj
Associate Professor
Department of Commerce IT
Sri Ramakrishna College of Arts & Science

2. What is Management Accounting?
Accounting for Planning, Control,
and Evaluation

3. Key Learning Objectives
•Discuss the differences between
financial and management
accounting information.
•Describe eight modern management
trends changing the role of
accounting in organizations.
•Contrast the four accounting
certifications and discuss the role of
ethics in management accounting.
•Define the four types of accounting
systems and relate them to their four
organizational roles.
•Explain stewardship and why the
dominant goal of accounting
systems historically has been
financial reporting.

4. Why Do We Have Accounting Systems?

Accounting systems are artifacts. They are created by
men to help accomplish tasks. Audited statement
reduce investors risk.

Audited statements allow a company to borrow capital from
someone else.

Records and internal financial controls safeguard the
company’s assets

Balance Sheets allow the comparison of Assets, Liabilities
and Owner’s Equity.

Income Statements describe the change in Owners’ Equity
from operations.

5. Needs Determine the Form of
Accounting Data

Managers need changing information to meet
changing needs!

Types of Accounting Systems

Financial Accounting

Rules and procedures

Accounting information systems and internal controls

Auditing

Cost Accounting

Product costing

Activity-based costing

6. 
Management Accounting

Decision support

Organizational control

Cost management

Profit management

Investment management

Tax Accounting

Individuals

Partnerships and corporations

Estate and trusts

International taxation

Special tax issues and topics

7. Regulated Accounting Systems

Financial Accounting or Generally Accepted Accounting
Principles (GAAP). Provide the basis for traditional
accounting information systems and internal controls.
Tax Accounting. This is the collection of data to meet rules
set by Congress and enforced by the Internal Revenue
Service (IRS).
Fund Accounting. An accounting system designed to
provide governance information for government agencies
and not-for-profit organizations.

Cost Accounting. This aspect of cost accounting is to
comply with rules set by the Federal government for
government contractors. Rules set by the Cost Accounting
Standards Board (CASB).

8. The Goal of Good Management is to
Create Value

Cost Management is applying the value criteria to
every decision we make, every activity we perform,
and every process we complete.

Modern accounting systems do not just evaluate
good stewardship but must provide managers with
the information managers need to improve value.

Management accounting systems are used to
enhance both decision making and management
control.

Management accounting systems do not need to be
perfect, only ‘good enough’ to increase value.

9. The Three Management Functions

Questions asked:

What do I want to do?


How can I do it?

Am I getting it done?

How well did I do it?

Management functions:

Planning for the future
(Strategic)

Planning for the future
(Operational)

Monitoring and
controlling the present

Evaluating the past

10. Data Characteristics of Financial vs.
Managerial Accounting

Financial Accounting rules are set by users who agree among
themselves on the regulations for (GAAP). This is hard data,
objectively verifiable, that must meet audit criteria to be
acceptable. It is therefore considered reliable.

Managerial Accounting rules are set within the company to
accomplish management objectives related to adding value to
the company. This is data that could be soft, or estimates, that
must only improve the value of decisions more than the cost of
information. Managerial accounting data must only be relevant
for management decisions.

11. Another Issue

‘The Invisible Hand of the market place’
assumes market prices can promote
efficiency. A perfect market reveals all the
information needed for purchasers to find the
‘best prices’ for goods or services. But what
are the prices managers use to run a
company? An example follows.

12. New Management Trends to Create Value

Encourage Management Accounting Systems
Redesign, for example.

Customer focus

Quality focus

Delivery focus

Outsourcing and the virtual company

Communications

Shortening product life cycles

Team development

Deregulation in the service sector

13. Managerial Accounting Systems:
Unregulated

Decision Support — Management accounting data
has value if it improves management decisions.

Control Support — Management accounting data
reports the results of management actions, thus it is
useful for control if management behavior is
influenced by the accounting reports.
WHAT GETS MEASURED GETS DONE!
SUITABLE CONTROL MOTIVATES GOOD JUDGEMENT
GOOD JUDGMENT REQUIRES GOOD INFORMATION!

14. Characteristics of Management
Accounting Systems

Key Ideas:

The costs and benefits of better decisions

One set of books for many different uses

Enhanced information quality for better decisions

15. The Professional Management Accountant

Professional Certifications

Certified Public Accountant (CPA)

Certified Management Accountant (CMA)

Certified Internal Auditor (CIA)

Certified Information Systems Auditor (CISA)

Certified in Financial Management (CFM)

Chartered Accountant (CA)

16. Ethical Responsibilities of the CMA

Competence

Objectivity

Integrity

Confidentiality
Maintain professional knowledge and skills
Follow laws and regulations
Analyze all relevant data and provide complete
information
Communicate all information fairly
Fully disclose all relevant information
Communicate favorable as well as unfavorable
information including limitations of the information
Avoid apparent or actual conflicts of interest
Support attaining the legitimate goals of the
organization
Avoid activities that will discredit the profession
Do not disclose confidential information unless
legally obligated to do so
Do not allow subordinates to disclose confidential
information

17. Professional Characteristics of The
Management Accountant

Most Important

Work ethic

Analytical and problem solving skills

Interpersonal skills

Listening

Spreadsheet abilities

Understanding the business

Understanding bottom line implications of management
decisions

Writing

Familiarity with business processes

Least Important

Interpreting financial statements

Measuring and reporting revenues and expenses

Accruals, deferrals, and adjusting journal entries